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Birlasoft Ltd
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So good evening to everybody. I'm Vikas from Investor Relations. And joining us today, we have our CEO and MD, Mr. Dharmender Kapoor, DK; CFO, Mr. Chandrasekar Thyagarajan, Chandru; Roop Singh, our Chief Business Officer; Shreeranganath Kulkarni, SK, who is our Chief Delivery Officer; and Arun Rao, who is our Chief People Officer. So please note that anything which we say on this call and which refers to our outlook for the future is a forward-looking statement and must be read in conjunction with the disclaimer, which we have put up in our Investor update and which has been uploaded to the stock exchange.I now hand over the call to DK. Over to you, DK.
Thank you, Vikas. Are you able to hear me well?
Yes, DK.
Okay. Fantastic. Yes. Good evening, and welcome to Birlasoft's Quarter 1 Financial Year '22 earning calls. Let me begin straight away in providing details on our performance for quarter 1 financial year '22. Birlasoft begins new financial year with a good confidence on growth momentum. It has confidence with its clients and continued success on optimizing our operations. We exited our quarter 4 of previous financial year with a good exit rate, both on quarter-on-quarter growth as well as full year revenue growth despite some of the challenges in our client industries during the pandemic year.For quarter 1 results, our revenue is at $128.4 million versus $120.3 million in the quarter 4 of previous financial year. And this was an increase of 4.1% quarter-on-quarter growth and 5.9% year-on-year growth. The quarter-on-quarter growth comes despite the loss of some revenue due to leaves taken by our employees in the peak of second wave of pandemic in India. The loss of revenue did have an equivalent impact on EBITDA as well. EBITDA margins for quarter 1 was down marginally at 16% versus 16.9%. However, in absolute terms, it is flat quarter-on-quarter and up 37% year-on-year. PAT stood at $15.4 million, which is up 14% from the previous quarter and 107% up from the same quarter previous year.We signed TCV deal wins of $153 million in quarter 1. New business TCV wins were at $94 million in quarter 1 versus $89 million in the previous year. We have seen some quick uptick in the new business and the wins for the quarter include many ERP implementations/ upgrade deals across verticals. The exciting part of the win for the quarter 1 is that net new wins and growth is back, which is at $19.1 million, 13% of the total wins. That must create a good base for continuous growth for subsequent quarters.Key customers continue to drive year-on-year growth for us with Top 20 and Top 20 customers growing above the company average growth. With consolidation of business in the top customers at the back of cross-selling, we have seen the addition of 2.10 million customers and 5.5 million customers in the last year. Despite the peak COVID situation arising in quarter 1, we were able to improve our utilization from 82.8% in quarter 4 to 85% in quarter 1 for this financial year. Utilization has improved significantly by 7% from quarter 1 levels of -- quarter 1 of the previous financial year at 78.2%.You all would be aware of the demand supply mismatch, which is temporarily seen in the industry. The pent-up demand as well as the pent-up attrition has led to increase in the attrition numbers for the sector. Birlasoft's attrition also increased to 16.5% from 11.6% in the previous quarter. Our endeavor is to broaden employee pyramid -- to broaden the employee pyramid, and it continues with the onboarding of 140 freshers in quarter 1 and 340 offers that are made for the quarter 2.Coming to outlook and demand trends, we have been witnessing early trend of pent-up demand emerging, which will contribute to the growth going ahead. The majority of the demand -- the majority of the delayed projects have been rescoped and have been restarted. Also the discounts that we had given earlier -- in the previous year, those are all taken back before the Q1 started. This is across offerings like digital transformation, Enterprise Solutions, application modernization, acceleration of workload migration to cloud, cybersecurity and infrastructure.On the platform side, in quarter 1, we fast-tracked our customer's cloud adoption journey by achieving AWS Advanced Consulting Partner status, which would further strengthen our cloud portfolio and enable us to leverage AWS to accelerate its enterprise clients' digital transformation journey. With major alliance partnerships in place, we would be able to provide a technology-agnostic, end-to-end solutions to our clients.Our organization is -- our organization in bringing focus on Enterprise Solutions and platform play has started to work well, and we have started to improve our pipeline. This led to improvement in our SAP and other ERP pipeline, both on the transformational and implementation side. And we remain quite hopeful to catch the net new momentum as travel eases in the U.S. and Europe. We continue to maintain our annuity business at 70% in the quarter 1. With the project-based business traction picking up, especially on the enterprise IT side, we expect this will lead to annuity revenue in the later stages of the project, and we will further improve our annuity business towards 70% level by the end of this financial year.Focus will continue to remain on the top customers and their area of priority spend. As travel picks up while addressing higher growth momentum, we will continue to maintain operational rigor to optimize our cost structure and efficiency in running the organization. As we all are well aware that Birlasoft is in business of providing services, and they were driven by the strength of people that we progress. During the pandemic, Birlasoft has shown its heart towards its people by providing all the help to overcome this challenge. After all business and care must go hand-in-hand.The first quarter of financial year '22 was one of the toughest for all the stakeholders in India. Given April and May month are the peak of COVID-19 second wave, I saw so many employees and their close ones who had to endure the pain, the second wave of COVID-19 unsettled many lives around us. On our part, we had set a 24x7 COVID helpdesk with teams from facilities and HR function. The helpdesk supported the request from employees and their families for hospitalization, medicine, food or groceries, medical consultation, critical equipment and even quarantine facilities.[ HDARE ] medical system was overwhelmed with the -- overwhelmed and struggling with the shortage of medical shops, location-specific doctors were made available online for consultation services. With a commitment to provide safety to our employees and their family, we made available vaccination drive across all the offices in India through dedicated COVID vaccination centers. We signed up with Apollo and Ruby Hall clinic to ensure that the vaccination drives were well planned and executed meticulously. Through this drive, nearly 40% of our employees and their families benefited from secured method of vaccine delivery and to their first dose. The second dose is planned in the month of September. Further, as a part of CSR initiative, we also extended the vaccination drive to all third-party staff, including housekeeping, security and technical staff.As we enter the quarter 2 financial year '22, we remain very, very confident in providing quality services to our clients and thereby continue to provide growth and profitability to our business.With this, I will hand it over to Chandru for providing more color to our financials. Over to you, Chandru.
Thank you, DK. Good evening, everyone. I hope you and your loved ones are staying safe and keeping well. Let me walk you through the numbers in some detail. DK already spoke about the Q1 revenue at $128.4 million versus the fourth quarter revenue number of $123.3 million, representing a growth of 4.1% quarter-on-quarter and 5.9% on a year-to-year basis. A point to mention here that we had negligible quarter-on-quarter cross-currency impact and the core -- the numbers would be the same on a constant currency basis as well. On a year-to-year basis, the constant currency growth rate would be 4.1%.Our EBITDA number at $20.5 million was a shade lower than the fourth quarter number of $20.8 million while we were up 37% on a year-to-year basis. The EBITDA margin at 16% on -- in percentage terms, was up 363 basis points on a year-on-year basis, slightly down 90 basis points on a quarter-on-quarter basis. The margins were impacted on account of a few factors. One, we had higher subcontractor costs in the past quarter. There were also increased hiring and recruitment costs and these relate to the comment that DK made around the talent supply challenger stack that the industry faced in the first quarter.We had some tailwinds as well. There was improvement in utilization that obviously helped our margin. There was also some rupee depreciation that helped in the margin -- marginally as well. Our other income at $2.9 million in quarter 1 compared with 700 -- $0.7 million in the quarter 4. We had a positive forex [ wing ] of about $1.9 million on a quarter-on-quarter basis, primarily due to reinstatement of -- restatement of our assets and liabilities as of 30th June, 2021.Our tax rate for the third quarter, the effective tax rate was 24.9%, and this compared to 27.7% in Q4. You will recall that we switched to our new tax regime effective the previous financial year, effective third quarter to be precise. And that has led to a reduction. Going ahead, I expect that the effective tax rate would stabilize at -- between 26% and 27%.And DSO, which is an indicator of our collections and receivables, saw further improvement of 2 days quarter-on-quarter on the back of very strong collections in the first quarter, it stood at 54 days versus 56 days in Q4. Cash and cash equivalents stood at $154 million, which is INR1,144 crore as of 30th of June. This is marginally above the $143.1 million as of the 31st March. We've started investing in AAA-rated bonds from this quarter onwards, apart from investments that we've already been making in liquid mutual funds, with deposits and corporate deposits of very high quality, and that is improving our liquidity and liquidity safety and yield at the same time.We spent about $1.5 million in CapEx in the past quarter, capital expenditure. One other item I wanted to call out who are on our return on equity. Return on equity on a quarterly annualized basis stood at 19.7% in the first quarter versus 14.7% in FY '21. Overall, we are very happy about beginning the year on a positive note with all-round improvement in all of our key metrics. However, with the improving pandemic situation and the fast rate of vaccination, we expect some experiences such as travel facility, et cetera, to come back in the second half of the year. Our endeavor will continue to be focused on operational efficiencies.On that note, let me throw the floor open for questions. Thank you.
[Operator Instructions] The first question is from the line of Mohit Jain from Anand Rathi.
Hi, sir, 2 questions. One is on the net new TCV side. So this seems to be a little on the lower side compared to what we have done in the last quarter, also on a Y-o-Y basis, given where 1Q last year was. So anything which got right shifted or any outlook on the net new TCV? That is one. Second, you also spoke about some tailwinds and headwinds mixed together in terms of margin. So what is the targeted '22 margin number current -- given current supply scenario and also, I'm assuming some COVID-related costs that you would have booked in the quarter.
Correct. Yes. Well, I think on the -- as far as the net new win ratio is concerned and the numbers are concerned, I think has started improving, and I'm very happy that the market has opened up. But of course, it is going to continue to take a little bit of more time because it is actually only in the quarter 2, the market has really opened up. Quarter 1, there were still a lot of restrictions. Even in the Europe, there are still -- for example, in U.K., there are restrictions of travel from India, those are there. But I believe that the net new that we have in our sales pipeline and the wins that we are seeing in the form of the ratio, that is sounding very, very positive because if you look at carefully, the focus in the last 1 full financial year, the focus of all on the cross-selling, whereas I think now it has started improving, adding into the newer customers. We added about 3 to 4 customers in this quarter. And that, I believe, is very, very positive because then it will start generating us cross-selling going forward as we stabilize the execution for these clients. So that is also the net new side and why it remains very, very positive for us. On the tailwind that now we are getting from the demand perspective, I think we will continue to see that in the upcoming quarters. We will have to eventually look at that. How do we get the supply and demand matched far more carefully because right now, while the demand is there, there is also a constraint on the supply side that is being there. And I think we have started working well with respect to hiring the resources and upskilling the resources so that we cash the momentum that is coming our way.
On the margin side, so where do we stand for FY '22?
Yes, that was, I think, your second question. On the margin side, I believe that this is going to be a little bit of stability, I would say, at the similar levels in the quarter 1 and quarter 2. Quarter 1, we have seen already. But in the quarter 2 also because there will be increments that we will be giving in the quarter 2. So some impact will come. At the same time, there are other places where we are improving our margin also, for some part of it, we will be able to recover. So I believe that in the quarter 2, I would expect the margin to be at a very similar level and remains stable. But I think in the quarter 3 and quarter 4, I believe that some uptick will start happening. Quarter 3 also have a headwind of number of -- lesser number of days. So there could be some challenge that can be there. And also now that we are anticipating a third wave and those are some things which are unknown. But looking at the way the numbers stack up today based on the demand that is coming our way, based on the way we are delivering and what optimization we are doing, I believe the quarter 2 will be at a very much similar level.
So you are seeing the wage hike impact, you will be able to absorb completely on a net basis in total.
Yes. That is what is our plan, absolutely.
Okay. And then we'll see how second half progresses. And sir, last is on the top 5 clients, there was some weakness, and so was the case with healthcare vertical, there was no growth actually, there was some decline on a Y-o-Y basis. So what should we expect there? What is happening in that vertical? And is top 5 also related in some sense to that vertical?
Yes, I think that is the -- that is one most exciting vertical that we have because of the -- some of the key wins that we have had. And generally, when you have a very large win that happens, there is always some part of the transformation that will continue to finish over a period of time. And that the reason sometimes we see that the part of the projects that finishes, then we had to go and recover it from rest of the business. So for having that vertical stable at that level, I think it is a -- it has been a good news for us because we have been able to recover any projects that were finishing through the new wins that we were making. I think now we are at a time where the revenue from the larger deals that we were having is getting stabilized. And as it gets stabilized, then probably you will start seeing the upswing on the vertical side revenue also.
So healthcare, we should start seeing some upstream given that the transition, completion or steady state has been achieved in the large side.
That's right. In fact, in the quarter 1, we thought that we will have a bigger gap, but we were able to recover it in a very nice way because we closed a couple of deals, and we grew with one of our top Lifesciences customer significantly in this quarter. And we were able to really recover all the gap that was coming by finishing the project.
And sir, top 5, that was my last question.
Sorry, what was the last question?
Top 5 clients, they saw some decline sequentially in terms of revenues. Is it also on the same account or?
No, it is only because of some of the projects getting finished. But I believe that we are going to grow with the Top 5, Top 10 and Top 20 customers the same way that we grew last year. Last year, we grew about 14% with these -- 14% to 20% with these clients. And I expect to be similar growth in this year also.
The next question is from the line of Sandip Agarwal from Edelweiss.
Thanks for giving me an opportunity and congrats [ peaked ] on a very good execution. Also you have been able to manage your attrition at same level on a year-over-year basis, although quarter-on-quarter, it has moved up a little bit. So I have a couple of questions. One, how do we see your 2 themes. One is the enterprise digital, which you already spoke about, how to [ modern ] that basically, what is the sense on that part that -- how quickly we will be able to convert some portion -- some more portion of our business into that. Secondly, is there any update on the new alliances, which you would have done with the cloud provider. Recently, there was one name which was there. Have you been upgraded to platinum status or premium status? What is the update there? And third, how do we see the growth from here on for the next 3 quarters? Will it be a very fast acceleration given the opening up of the global economics and the travel opening up and all or you think it is too early to call that out? So some insight on these 3 parameters.
Yes. I think a very good question on the enterprise digital because that had been our position because we believe that while there is a lot of discussion around the Enterprise Solutions or ERPs. But actually, if you look at very carefully, the ERPs are also becoming digital because the software as a service is really picking up very well. And that is the reason if you look at carefully, we have reorganized our business into the Enterprise Solutions, business and technology transformation and the cloud and the base services. So these are the 3 elements in which we have done that. So that, we can really take the benefit of the digital that of coming our way or the benefit of enterprise digital that was coming our way because most of the ERPs are becoming digital by adoption of software as a service for their respective solutions. So that means that we need to address it very differently and very similar to digital wave. At the same time, the digital services we're seeing significant growth for us. And that would mean that wherever there are surround technologies, which are digital in nature, which sits on top of the Enterprise Solutions, which we call also as enterprise digital, we need to give the acceleration to that also. And that all depends a lot on how quickly we build our relationship with the OEMs and the solution providers. And that's the reason you saw the significant focus on building a very strong relationship with Microsoft earlier, now with the AWS, and now we are moving into the Google also so that with the hyperscale, we are able to build the relationship in a very strong fashion. For the clients, while we will remain technology-agnostic so that we bring the best-of-breed solution to them. But at the back, we should have a very strong solution where we can define what is the best for our client, we can package our services and solutions on that. And it will be based on -- it will then be connected on the industry that we back, which is BFSI, Energy&Utilities, Lifesciences or Manufacturing. So at the back, it will be connected on that also. So enterprise that are digital, in my opinion, is now getting to a good level of maturity for us. And I believe that the reason that we have started seeing much better growth in the digital revenue now, even when it is sitting on top of the Enterprise Solutions. And that is also helping us go and close the Enterprise Solutions business or ERP business also because when we tell our clients that we can deliver you much superior value, they go and then try to do the transformation, keeping all that in mind. So that is on to that side. I already answered on the AWS side, we upgraded our partnership with them. On Google side, very soon, we will sign the top also. There are discussions going on, and we want to go very specific industry-wide so that how do we provide these solutions jointly that is delivered -- that is created and delivered and a position on the cloud. With Microsoft, the progress is very good because now while it began with the one type of solutions on the cloud, but now we are looking at that. The interest is to continue to go and sell with them on all the solutions that they have and also some of the solutions and propositions that we create. And that partnership, Microsoft is really scaling up very well for us.
Yes. And I have a question on how to build growth for the next 3 quarters. How do you perceive that? So if you can throw some light on that?
So we will definitely be growing quarter-on-quarter. We are very confident of that. It is just that I don't want to put -- don't want to put a number because we don't give the guidance very clearly, okay? But we will continue to grow. We will -- we continue to see the momentum in fact in the quarter 1, if you look at carefully. We probably lost about $1 million of growth to COVID-related leave, okay? Our growth would have been much, much better because that is our existing revenue. But now things are stable. I just hope the wave 3 also doesn't happen, but we look at going forward with lot of optimism and the quarters are looking good.
So DK, if I can go a little bit more. Will it be fair to say that we will be in the top quartile of growth within the mid-cap space or we will be in top quartile of industry growth, some benchmarking because I agree, and I respect your policy of not giving any guidance, but you must have something in your mind that at least mid-teen growth or low double-digit growth or double digit growth, something where we can benchmark at least.
So I think I did mention that our goal is to go the mid-teen growth, okay, for the financial year. So that remains.
So you are not changing that as of now?
No, no, right now, we are not changing because we still believe that while there is a good tailwind, there are also some anticipated headwinds like wave 3 and all that that can happen. So one has to be careful while determining all that that is not in the hand of anyone. So one has to be careful with the guidance that one gives in the market.
Okay. That's all from my side and best of luck for the future quarter.
Thank you.
The next question is from the line of Shradha Agrawal from Asian Market Securities.
Congratulations on a good quarter. So firstly, I mean, how did the quarter plan out? I mean, was it on expected lines barring the COVID impact? Or did it drive better than expectation? So just some thoughts on how did the quarter go by for you?
If I look at internal goals that we set for ourselves, it has done much better than that actually. Okay, both on the revenue side as well as on the EBITDA side because we have made some investments during the quarter, okay. Despite that, we are delivering 16%. I'm very happy about that, and it is better than the goals that we set for ourselves.
Given this background that we had a better start than what we had anticipated. Why aren't you changing our new so called the qualitative outlook for the year. So why are we still maintaining a mid-teen formal growth guidance and why are we just topping out?
Yes. I think I will be in a better position to say so by the end of this quarter. That is one thing, because it is anticipated that the Wave-3 can hit us in the middle of August, that is one reason. Second is that, I would love that we continue to deliver better than what expectations we had for ourselves as well as for the market, okay? So from that perspective, my goal would be that how do we continue to deliver better. And I think in quarter 1, we have done that. And I expect that we will do that in the rest of the quarter.
And sir, secondly, on margins. We had at the start of the year indicated that we should be around 15% margin for the full-year '22 and we are at 16% margin in first quarter, and we expect similar margins in Q2? And then, you have indicated that you expect build up on that margin in Q3 and Q4. So how should we then look at the margin outlook for the full year, given that 16% is a base and there'll some improvements happen in the second half of the year?
Correct. I think my answer is very similar to the answer on the growth side or the revenue side, because imagine that if you had loss 1 million top-line due to COVID, that has also gone from the bottom-line, because we have taken the cost, okay, but revenue has not come. So the margin could have been much better actually if there was no wave 2. Same is going to be the issue with respect to wave 3. I just hope that it doesn't happen. Then, I'm sure that we'll give you much better news at the end of the quarter 2 and going forward also. But at the same time, yes, we do have the hit of -- we will get the hit of giving the increments to our people. But we continue to work on optimizing our execution, so that we are able to recover everything that we lose on the margin side. We continue to recover from the optimization.
And sir, these increments that we're talking of inclusive, which is across the organization, across all brands of employees?
Absolutely. All employees across the organization. We did the same thing in the month of January. We did it for all the employees across the organization.
And sir, just one last bit, if I can squeeze in. It's been some time since we announced a large Invacare deal and some of our peers have been reporting very large on key deals. So I mean, how are we and why are we missing out on the large defined front? And how does the pipeline look like? And can we expect some large deal announcement to come through in the next 2, 3 quarters?
So we continue to work on that. It is just that the larger deals are not that large anymore. And wherever we are seeing the larger deals, those are mostly the renewal deals that are happening, because those were the ones which were signed in the previous decade and those are getting renewal. And hence, they look very, very large.But if you look at very carefully, the newer deals are not of that size. And even if they are of that size, they are divided into the smaller chunk. So that it is not a multiyear deal. It is a 2-year, 3-year deal, 3-years deal, are more frequent than the 5-year deals now. But earlier, we used to have 7 year deals also. And that the reason the TCV, TCV size used to look much bigger. But these ways, the clients want to really look at that how quickly they can see the shift that is happening on the technology and how do they not commit for the longer-term because the technology is changing. And they expect that all that changes will require them to re-look at the contract that they have signed. So that whether it is going to cause them higher or lower, they can take the advantage of that.
And just one last thing. This new deal TCV number, which is close to $94 million for us in this quarter. And you had said last quarter that if this number gets to $120 million, $130 million kind of a run-rate, you would be more happy and comfortable guiding to 15% kind of a growth number for '22. So should we start expecting this kind of a ramp-up in the new deals TCV in one or 2 quarters? Or should we expect a similar ballpark range of $95 million to $100 million in next quarter?
No, I think we should expect -- we should continue to expect that because there will be some quarters that will be marginally lower, and there will be others, which will be a bumper quarter that that definitely continues to happen. For example, the previous quarter, if you look at that, it was a huge quarter for us. So on an average, as I said earlier, that on an average, if it comes through about $200 million, I think we are very comfortable, but on the average, because last year, if you look at -- it was little above 800 okay, that we closed.So I think that is what we had to look at. There will be some quarters that might be lower because we would have signed up the deal at the frag end of the previous quarter, okay? If that does not happen, then, it falls onto the next quarter. So I think it is just that much of a difference that causes the number going up and down. And we have a very strong pipeline today. The pipeline is at least 10% or 15% higher than what it was actually at the end of the quarter 4. And when that is there, that would mean that the upcoming deals will definitely move up.
The next question is from the line of Abhishek Shindadkar from [ Incred ] Capital.
And congrats on great execution. My -- a couple of questions. The first question is on the ERP recovery that you talked of. Will this recovery lead to increasing on-site revenue mix for us? That is first. The second question is on the segmental margin movement. BFSI and Lifesciences had a pretty soft Q1. Despite that, they have seen a sequential dip in margins. So how should we read that? Any color could be helpful. The third is on the company average growth that you talked of for top 5 in FY '22.Just wanted to understand the decelerating trend in the year-on-year growth for top 5? I mean, is there anything in terms of delays or right shipping of business for top 5? And lastly, on the ETR, I heard 26% to 27% for '22, is that right? And what changes it from 27% to 29% stated in Q4?
No, I think on the ERP side, absolutely, we have started seeing better pipeline. And we have started seeing the projects coming back, which I believe is a good news because that means that the clients have started taking up the transformation journey again. Because in the previous year, they put a pause on such larger programs, which is what has started to come back, and that would mean that it is going to give us good momentum in that side.Now, whether it will increase the on-site revenue or not, entirely depends upon the situation that we are in. For example, when the travel is not happening, we often start the projects by hiring the local people, because they are quicker to hire and start the project quickly. Whereas in India, when the supply becomes a constraint, the resources can take 3 months to join, and sometimes they drop at the last moment also. So from that perspective, yes. In the shorter term, we will see some uptick in the on-site revenue.But eventually, it will balance out, because the moment we get the people hired at offshore, we go and replace the subcontractors with those resources that we hire at offshore. At the same time, the client is already and always in an agreement that is how the whole resource loading will happen. And they are also on the same page with respect to starting on-site and then balancing it between on-site and offshore, so that we are able to make our margin. At the same time, they are also able to take the advantage of the cost reduction that comes to them. So that's the way it will continue to happen.And I think that had been the method always. It is just that during the COVID period, probably it has got highlighted more because the supply constraint has been highlighted in a big way in India right now. So that is one thing. And then, if I look at on the company average growth and all that, I believe that on the top 5 or top 10, we remain very upbeat with all the set of clients. It is just that sometimes the top 5 clients and top 10 clients, some clients interchange also. But these were also the clients in the previous year, who had stopped the larger programs.For example, we were working on a very large SAP program, which has started again now. But the previous year, it was stopped, okay? Similarly, some of the investments were stopped. But most of the larger customers are the ones who had stopped those programs because they had a larger programs set-up for them. But I don't think that should be taken as a benchmark or that should be taken as a basis for going forward, because those are also the projects that are coming back. And that's the reason that we continue to remain upbeat about our top 20 and top 30 customers, because that's where our major focus will also go on.And there was one question on the ETR side. So Chandru if you can.
So on the ETR, yes, you are right. In the fourth quarter, we've given a guidance of between 25% and 29%. You'll recall, the ETR that would be fourth quarter was 27.7%. There were 2 factors that reduced the ETR for the first quarter. One, of course, given that it was the fourth quarter, we had to do some true-up after moving in -- moving from the old tax regime to the new tax regime in India.And that caused some, I would say, a higher tax rate, effective tax rate in the fourth quarter too. This is the first -- Q1 was the first, I would say quarter in the current financial year, where we had an opportunity to take stop of how our ETR will move based on the revenue and margin mix that we see by geographies. And therefore, we -- one is that too, we also got some -- we got some little advantage this past quarter from our favorable assessment that got close for the prior quarter, but that was marginal.But overall, I'm confident that we should be able to get to between 26% and 27% going forward. So that's why, we said, it will be more reasonable to expect a lower ETR than I had given in the fourth quarter.
I'll just remind one question, on the segmental margins, especially on the BFSI and Lifesciences part. And a follow-up to your comment on the stopping of large program on the SAP side. Was that largely because of COVID uncertainty? Or it was also a staffing or any other issue?
In the beginning, it was definitely because of COVID, because when they all are working from home, starting a complex program becomes very difficult because you need to do a lot of meetings, workshops, whiteboarding, which becomes very difficult when everybody working from home. So that was one primary reason. Second, all the industries, which are our clients actually saw the decline in their own business. And they were not too sure how bad it would be. So they started putting the cost saving measures on their side. And most of the time, the cost-saving measures will be put on the newer program and the more complex and larger programs and not on run the business. The run part will continue to happen as it is because they -- that's a matter of survival. But the larger programs, which are more discretionary in nature, those are the ones which will be put on hold, and that is what happened with them.
And on the segmental margin side? So on the segmental margins on a quarter-on-quarter basis, BFSI and Lifesciences have seen a significant cut despite having soft growth. So was it that there were transitions of deal wins that we had won earlier? Or anything to read on that?
No, I think and the Lifesciences absolutely that there are some projects that we have started at on-site. And there will be initial increase in the costs that will happen with that. So that is the reason most of the time. On the BFSI side, also, if you look at clearly that there are 3 or 4 customers in which we have gone and looked at how do we make the investment for the next level of growth for us. So that is one primary reason that is there. Then, there are some of the leaves that have been taken because a lot of time in the BFSI. They are more, what you call a high touch, high-touch services that they deliver to their clients. And hence, they would have seen more leaves happening during the COVID time, and that was a bigger impact on them. So I think those are the reasons on the BFSI side. But in the Lifesciences side, it is mostly because there are newer projects that we have started at on site, but it will get balanced over a period of time.
[Operator Instructions] The next question is from the line of Dipesh Mehta from Emkay Global.
Yes. Thanks for the opportunity and congrats for the strong execution. A couple of questions. First, about Enterprise business. I think now we reported Enterprise Solutions as a separate service line-item. And you indicated in your earlier commentary, some of their program, which were halted now coming back to the growth trajectory and likely to be positive for growth. So if you can provide some color, how one should look Enterprise Solutions business playing out for us over maybe next couple of quarters and over medium term?Second question on BFSI. Now, BFSI business remain muted for us for some time. If you can provide some color about how you expect the BFSI business to play out for us? And how you expect the growth trajectory over next couple of quarters? And last question is about margins. You indicated you expect to maintain EBITDA margin next quarter despite salary hike. So can you help us understand what are the margin diverse available which you plan to utilize in Q2 to neglect impact of salary hike?
On the Enterprise Solutions, I believe that it is not only about the traditional ERP revenue that you would have seen it for many years. But also, now, as I talked earlier, the software as a services has started to come a big play. Second, what has started happening is that the SAPs and the oracles of the world, they have started acquiring some of the other solutions that they go and integrate with their own organization. But within our services company, that might be getting delivered as part of the emerging horizontal earlier, okay? So what we have done is that the likewise services, we have consolidated it together, so that we don't see that as an Enterprise -- or we don't see that as an ERP. But we see that as an Enterprise Solutions, which may include some of the other solutions that sit on top of that and get delivered collectively, because most of the time, these need to get bundled and requires a lot of synergy at our end in order to deliver it very, very effectively.So from that perspective, I believe we will definitely see that when we are giving end-to-end solution. We will start seeing better pipeline coming into the play and better opportunities coming on the way. And our ability to address it also far more effective. So we will see that that should definitely grow. The only thing that we have to be careful that sometimes we see -- we want to see the growth from the percentage point of view. Percentage is receptive, because sometimes when the revenue otherwise is growing, but it may not look like in form of the percentage because there are other growth areas such as digital are also growing faster, okay? But what we have to look at in both, in absolute term and the percent rate terms, we look at both, and then, we should continue to look at that yes, whether that is growing or not. So that is one thing on the Enterprise Solutions side.
Sorry to interrupt. But the enterprise currently, it is $55 million odd run-rate quarterly. So this needs to be $58 million a year back. Now some of the factors which you said about as AGL services and all those things, I think, doing very well for some of our peers, and that is why they are seeing good growth even in the Enterprise Solutions reported numbers, which in our case is not playing out. So do you think now we are on the recovery mode and that growth trajectory will be much better than let's say negative or flattish performance for last 2 quarters?
Correct, absolutely, and which is what I mentioned earlier also that, for example, the pipeline that we have started getting through our Enterprise Solutions sales now is far better than what it used to be in the previous year, because I talked about in the last quarter that we had made the arm change, where we have started having a separate channel for the Enterprise Solutions.And that has started showing good pipeline. And that's the reason that we are very hopeful and upbeat about that this is one area that is going to grow. Moreover, what we have done, as I said in my comment earlier that that we are integrating it and making it far more complete by bringing in the software as a service solutions, so that when we get in front of the customer, we provide them the best of the breed solution. And if there is something that can be packaged together or bundled together, we are able to deliver that.That means for a deal earlier, if we were closing a deal, let's say of $10 million, now, you will be able to do it for $12 million because you are bundling these services together. So I think that is the another advantage that we'll start seeing.
And you can reply to other 2 questions?
On the BFSI side, yes, there has been a softness in BFSI sector for some time. And we have to address it by looking at the other geos, because we had a higher concentration in the U.S. And now, we are going and started talking in the Europe side also. And I believe that that should start showing some result.We have yet to see that how that will pick-up, because one that we had to have the geo approach in the BFSI space. Second is that the BFSI as a sector also had slowed down in their technology spend, because they were looking at what their approach would be against an -- or fintech companies. And they were also trying to get rid of their legacy.So if you're winning the newer solutions, the legacy costs also had to be reduced. And hence, most of the time, you did not see the incremental spend coming from the client. So despite winning the new business, you stayed where you were. So I think that was the challenge that we have faced in the last couple of years. I believe that as we now define our newer strategy in that direction, it should start showing us a positive result.But we have yet to experience the level of spending to increase there. But I think with the newer solutions that are coming into the play, I'm very hopeful that it should show us some good growth there.
And about margin?
On the margin side, I think I mentioned earlier in the answer that we aim to be flat in this quarter, because there are both headwinds as well as some of the optimization that we are doing, both are there. And we want all the increased spending that is going to happen. We want to benefit out with the optimization that we will do.And if we remain flat...
Understand sir, and what are the levers, like revenue optimizes and what would be -- because utilization I think we are at peak.
Correct. The pyramid is one big lever. The pyramid is a big lever. The subcontracting side is a second big lever, because in the quarter 1, if you look at we have our subcontractor cost increase because we had to start the program fitting it on-site. And that would mean higher cost for us at the on-site.But as we get people now at offshore, we will start replacing the subcontractors also. So that will be the second advantage that will come into the play. Third advantage is very clearly that the margin that we lost because of the COVID leave, I think that we hope that it doesn't come in the quarter 2. That is another lever that is there. Fourth is where we hired, okay? Now that we have the pipeline of people joining. It is not as bad as it was in the quarter 1, because in the quarter 1, it was a sudden demand that came up for everyone and everybody started running after their sales.I believe that it will be getting better in the quarter 2. But eventually, the real advantage will come actually in the quarter 3 and quarter 4 for that. But some advantage or at least the balancing will happen in the quarter 2 itself. And I think that is going to give us -- if it doesn't give us the advantage, it is not going to give us any incremental disadvantage because of the capacity being available.
Can you quantify salary hike intake you expect in Q2? Thanks.
I'm sorry, ask the question again.
Can you quantify salary hike impact you expect in Q2? Chandru, did you hear that? I'm sorry.
No. Can you repeat that question, please?
Impact of salary hike expected to meet our margin next quarter?
Yes. The impact of salary hike should be approximately 1.5% to 2%, and that has what to be budgeted in our budget for next year already. And we have already planned as to where all we are going to recover. And that is how -- we are pretty certain that we will be able to recover that much.
Ladies and gentlemen, due to time constraints that was the last question for today. I would now like to hand the conference over to Mr. Dharmender Kapoor for closing comments.
Yes. Well, thank you very much to all of you for joining the call. I absolutely feel very, very good about the quarter 1 result that we have given the good growth. At the same time, it was expected that our margin may not touch 16% and we -- but we have delivered. And we have remained pretty much in-line with the optimizations that we have been doing.Otherwise, the impact could have been higher because there were many headwinds during the quarter. But we have been able to really counter that with the optimization drive that have been there in the organization. And I expect that in the next quarter also we will continue to maintain that.Having said that, the demand definitely is there. We are far more certain with the changes that we have done in the organization on the Enterprise Solutions side, because we have started seeing better pipeline. The confidence with some of our clients is very, very high because there is a significant growth that we are seeing with those clients, where we actually saw a decline in the previous year. And there is a very good growth with the key top 5, top 10 clients that has happening. And in my opinion, that is what is going to drive a lot of momentum for us in the quarter 2 and quarter 3 also.So having said that, I think the optimism remains. And I'm sure that we will continue to deliver very good result to all of you. Thank you very much.
Thank you. On behalf of Birlasoft Limited, that concludes this conference. Thank you for joining us. And you may now disconnect your lines.